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Leveraging Data to Control Legal Spend

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With load flat or declining across much of the U.S., utilities face increased pressure to cut costs and do more with less. Legal department budgets are not exempt from this trend.  To address these cost pressures, we sought to reduce our FERC legal budget without reducing the overall level of service we provide to the business or burning bridges with our outside counsel and other long-term service providers.

The traditional in-house counsel approach used to reduce budgets involves adjusting inputs—pressuring outside counsel to reduce their rates, reviewing bills more closely (and demanding more write-offs), and pulling work back to be performed in-house. More recently, in-house legal departments have sought to switch from hourly billing to flat-fee arrangements to try to control outside counsel costs.

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Unfortunately, each of these approaches has side effects, either damaging relationships with long-term service providers, hitting resource constraints (there’s only so much work that can be pulled back), or introducing the additional risk of reduced quality of work products by switching to flat fees. As a utility that constructs projects that can take a decade from conception to completion and that have a useful life measured in decades, it makes no sense to cycle through law firms and burn bridges along the way arguing over bills. This approach may help short-term budgets but imposes such long-term costs that it isn’t a viable option for an entity with a planning horizon measured in decades, not quarters.

We took a different path.

Instead of pursuing the traditional approach to legal cost reduction—exemplified by writing down bills and pushing down outside counsel rates—we embraced data analytics, seeking to leverage technology to better prioritize and reduce our spend without pressuring our outside service providers.

We began by pulling together extensive data on our historical spend, with an emphasis on understanding the drivers of our legal budget. This effort involved a multi-year lookback at what we were billed and why. We then sought to characterize the nature of the work. Were these one-off transactions? Questions from internal stakeholders? Routine day-to-day operations? Compliance violations?

We exported .csv files from our legal billing software and then, working with our internal data analytics team, used Microsoft’s PowerBI to get a visual representation of the nature of our historical legal spend. This visualization helped us see what firms we were working with over time on which types of matters. Our data analytics team assisted with parsing and understanding what we were looking at and what it meant to the bottom line.

The results from this data analysis were striking. Usually, the first targets for bill reductions tend to be things like minimizing the number of people attending meetings or limiting billing for multi-person conference calls. But when we analyzed the data, we saw that our costs were not primarily driven by day-to-day operations but instead were driven by more one-off compliance issues.

That is, our budget wasn’t driven by routine calls with outside counsel, but instead was primarily impacted by small compliance items that had been overlooked, were not detected quickly by internal controls, and then resulted in significant compliance violations with remedial actions and mitigations—all of which drove extensive spend on outside counsel. Counterintuitively, failing to call outside counsel to get clarity on a particular issue (which may cost a few thousand dollars) could result in our spending tens or hundreds of thousands of dollars years later sorting through the issue with our regulators. In a sense, eliminating those types of calls to outside counsel wasn’t decreasing legal spend so much as it was deferring it to a later date, with potentially significant escalation.

Understanding this key fact helped us prioritize our internal efforts to build out our FERC compliance program, rather than trying to cut corners on routine operations. Our FERC compliance program team identified each of the key tasks and deliverables we’re accountable for, then developed procedures to ensure this work was completed properly. We worked with outside counsel to review and ensure our approach aligned with industry best practices.

Because we have previously had compliance violations related to failing to file necessary agreements, we worked with our IT department to automate SharePoint workflows to create audit-ready records of our actions. Further, we documented the processes we established to routinize as much of our work as possible, and then leveraged our existing GRC tool to standardize and centralize the review of all types of agreements, while also providing enhanced visibility to internal stakeholders. These actions took what was once one of our greatest compliance risks—failing to file agreements under sections 203 and 205 of the Federal Power Act—and created an audit-ready process to track and ensure compliance. We followed this process on our other types of work, with an emphasis on identifying where we have previously had compliance issue and figuring out what controls we could establish the minimize the risk of recurrence.

The result of the intense program-building efforts? We’ve minimized our compliance issues, and those that have occurred have been quickly identified and addressed so they don’t blow up into larger issues.

Two years after implementing this approach, we cut our FERC legal spend by more than 80% over the previous year and 70% versus the previous five-year rolling average. In 2020, we are on pace to cut our spend by another 50% from last year, which would reflect a nearly 95% decrease in outside counsel spending from our peak spend several years ago. All these results have been achieved without writing down a bill or arguing with outside counsel about rates. Rather, leveraging data analytics to understand our legal spend helped us to prioritize where to invest—truly enabling us to do more with less.

Trevor Stiles's picture
Thank Trevor for the Post!
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Matt Chester's picture
Matt Chester on Nov 30, 2020

What a great new (to me, at least) angle to show the importance of proper collection, analysis, and use of data. They used to say time is money, but no doubt these days data is money!

Mo Kamuss's picture
Mo Kamuss on Dec 1, 2020

This is a valuable lesson for all companies to leverage technology and data analytics to get a better understanding of operations and spend. Thanks for sharing!

Daniel Burillo's picture
Daniel Burillo on Dec 17, 2020

Sounds like basic IT business process improvement that management consultants deal with all the time. Poor internal quality control was resulting in large compliance penalties. Your company created a checklist, a flowchart, and a process to automate & delegate as much of the menial tasks as possible. Then, you put the remaining work on the brains' desk and voila. Rather than perpetually outsourcing the work, or internally mismanaging it, you hired 3rd party consultants to help you re-engineer internal systems, and it worked.

Now, what do you know about leveraging data to win high-stakes court cases?

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